Stocks weaker post-Fed, Bank of England, OPEC+ meetings ahead

Wall Street fell and Asian equities followed the weak handover even as the Fed stayed very much on script with a dovish lower-for-longer message, whilst also presenting a more upbeat take on the economy in the near term.

The Fed put some meat on the new average inflation targeting skeleton that was sketched out by Jay Powell at Jackson Hole, saying it will aim to achieve inflation ‘moderately above 2% for some time so that inflation averages 2% over time and longer-term inflation expectations remain well anchored at 2%’. But the rub is that it doesn’t see this inflation coming through until 2023 at the soonest.

There were no explicit easing measures to get there sooner, so the FOMC has only really filled in some blanks as to what we already knew, and seems content for now to wait for Congress to sort the fiscal side out before it does anything more. The lack of any real determination to get inflation up sooner seemed to disappoint for risk.

Equities lower after FOMC, dollar catches bid

Equities peaked after the statement and then progressed lower during the presser with Powell right into the close, with the S&P 500 finishing down half of one percent at 3,385, led by a decline in tech, which is about a quarter of the index, whilst energy – now a tiny c2% weighting of the index – rallied 4% as oil climbed.

The 21-day SMA offered resistance and now we are looking again to the 50-day line at 3,335, with futures pointing lower. Meanwhile the Nasdaq finished –1.25% lower with Tesla, Apple, Amazon et al falling, and is likewise trapped between its 21-day and 50-day lines, with big trend line support close. European equity markets took the cue and fell over 1% at the open as the FTSE 100 again tested the 6,000 level.

USD caught a bid as well, with the dollar index lifting from a post-statement low of 92.85 to clear 93.50 overnight, before coming off a touch to 93.30 in early European trade. GBPUSD retreated to 1.2950 having earlier hit the 1.30 level. Gold came off its highs at $1970 to test the $1940 support area.

The Fed sees unemployment at a lower level and a larger economy by the end of the year than it did in June. Real GDP forecast for 2020 was revised down to –3.7% from –6.5% in June. Unemployment is seen at 7.6% compared with the 9.3% anticipated in June. Inflation is seen picking up more than it was in June albeit the rise in breakevens has levelled off at about 1.7%.

The key takeaway from the economic projections is that both core and headline PCE inflation are not seen returning to 2% until 2023 – the Fed even had to add a year to the forecast horizon just to get this in. Given it didn’t manage to get to 2% with unemployment under 4%, there is a lack of credibility around this, even though I for one believe inflation will come through.

The Fed is in the dark and there is no more it can really do without spiralling into the abyss of negative rates. The Fed is in the dark not just because it has no control over inflation, but also because the political situation remains very unclear with regards to fiscal stimulus and the presidential election in November.

So, there is a lot of uncertainty and all the Fed can really do is continue to stress its willingness to do whatever it takes and its willingness to overlook overshoots on inflation should they emerge. I’m in the camp that does expect inflation to feed through due to the massive increase in the money supply combined with supply chain disruption and the fiscal largesse.

The Fed’s policy shift also raises the prospect of inflation expectations becoming unanchored. However, we cannot ignore the fact that the pandemic has had a chilling effect on confidence and spending may be slow to reappear, pushing down on inflation for a while longer.

US data softens, focus switches to jobless claims and Bank of England

US retail sales lost momentum last month, with sales rising just 0.6% versus the 1.1% expected, signalling the effect of the expiration of $600 stimulus cheques that made many at the lower end of the income scale better off out of work than in.

US jobless claims later today will be closely watched for signs of any improvement after last week’s disappointment. Last week’s print of 884,000, which was flat on the previous week, signalled a slow down the recovery in the labour market and worried economists.

The Bank of England delivers its monetary policy statement at midday – will it surprise by going ‘big and fast’ with more QE – as governor Andrew Bailey suggested is the best approach for central banks in times of crisis last month?

There is also speculation that the Old Lady of Threadneedle St will turn to negative interest rates to stimulate the economy. Speaking to MPs recently, Bailey refused to rule out negative rates – a policy that has systematically failed to deliver the required inflation in the Eurozone – saying that it remains in the box of tools.

I’d expect the Bank to tee-up an increase in QE in November and not further rate cuts, but it may choose to fire first and ask questions later.

Snowflake surges on IPO

Snowflake (SNOW) shares made an astonishing stock market debut. After pricing the IPO at $120, the stock flew to almost $280 in the first few hours of trading before settling at $253. The price to sales multiple of about 360 is simply astounding – a lot of future growth was priced into the stock on its first day.  It’s the biggest software IPO ever and demand was exceptionally high, and the multiples being paid even loftier.

It seems to be a story of the scarcity value of growth. It also shows just how much wild, free-flowing money there is in the market right now chasing whatever’s seen as hot and whatever offers the most growth.

We’re almost into the territory of describing these tech stocks as Veblen goods, where demand rises with the price. The IPO market is getting very frothy. We can blame/thank the Fed for this situation with ultra-low rates assured for a very long time and massive liquidity needing to find a home at whatever price that is. It’s like 1999 all over again.

London sees biggest listing in years as The Hut Group IPOs

Even London is getting in on the action with The Hut Group getting its IPO off with a swagger and a close at more than £6 after listing at £5. As noted when the listing was announced at the end of August, the valuation it deserves depends very much on your point of view.

In 2019 THG achieved year-on-year revenue growth of 24.5% to reach £1.1 billion with adjusted EBITDA of £111.3 million. The float aimed to raise £920m at £4.5bn market cap, which at c40x last year’s EBITDA and x4 sales doesn’t seem like too much to pay for this kind of growth….or does it?! The answer rests surely on whether it deserves a techy or a retail multiple.

Management forecast overall revenue growth of 20-25% over the medium term, with its tech platform Ingenuity (the capital-light growth lever) forecast to grow at 40% primarily as a result of increasing mix of e-commerce revenues as global brand owners accelerate their adoption of D2C strategies.

But revenues from Ingenuity remain relatively small – £61m in the first half of 2020, which was flat on last year and less than 10% of total group revenues. As a percentage of group revenues, the contribution from Ingenuity is going down. Again it’s the promise of growth that is appealing to investors right now.

Oil softens after FOMC statement

Elsewhere, oil was a little softer overnight as risk sentiment came off the boil after the Fed, but this came after a couple of very solid days. WTI for Oct breached $40 on the upside before paring gains but the $39.50 area has held for the time being and offered a springboard in early European trade.

EIA data showed inventories fell 4.4m barrels, contrasting with forecasts for a build. Gasoline stocks were drawn down at twice the rate expected. However, we remain concerned about the demand pick-up through the rest of the year – as all the main agencies have recently revised their demand forecasts lower.

We note also a report suggesting that OPEC is not about to panic by further cutting production – however that would depend on prices; WTI at $30 again might induce action. OPEC+ members are holding an online meeting today to assess compliance and whether additional cuts may be necessary – I would think for now they will stand pat, with the focus chiefly on compliance with current targets, which currently stands at 101%, according to sources reported yesterday.

But if prices come a lot more pressure there would likely be an OPEC+ response.

Markets steady before Fed meeting, Hut Group pops as IPO market shines

It’s Fed day: risk sentiment remains broadly positive but the big-ticket event is the Fed policy meeting. US stocks rose Tuesday as the two-day Fed policy meeting kicked off.

Whilst there is relative calm in markets again after the tech-led sell-off produced a correction in the Nasdaq and a 7% decline in the S&P 500, the expectation on the Fed to be very dovish may lead to volatility should the market think the FOMC isn’t offering enough detail on the future path of monetary policy.

The S&P 500 added 0.52% and managed to close above the psychologically significant 3,400 level after running into resistance at the 38.2% retracement of the early September pullback, with the 21-day SMA sitting around 3,426, which may offer a further test for bulls. The Nasdaq added 1.2% as Tesla shares rose a further 7%, extending the rally from Monday’s 12% gain.

Overnight, Tokyo was flat as Yoshihide Suga was elected as Japan’s new prime minister, replacing Shinzo Abe. European equity markets were slightly higher in early trade, though the FTSE 100 dropped.

FOMC preview: what to look for from today’s Fed announcements

There are several things to look out for from the Federal Reserve today, not least some firming up of the details around the new average inflation targeting regime.  After Jackson Hole, there were some unanswered questions for the FOMC.

There was not much in the way of detail of how the Fed plans to deliver the new AIT framework, for instance. And Powell’s speech lacked in any real specifics on the nature of forward guidance that the FOMC is clearly leaning towards – this will be an important lever of the AIT approach, so it needs to be clarified at this meeting.

Should forward guidance be based on a time horizon or specific economic data? Yield curve control has been shelved as an idea by the FOMC but remains an option should it desire. Today’s statement and press conference with Powell will be of great importance to iron out how AIT will be delivered.

Powell stressed that if ‘excessive inflationary pressures’ were to build, or inflation expectations were to rise above levels consistent with its mandate, the Fed ‘would not hesitate to act’. This gives it a degree of latitude down the line should there be a major inflation overshoot, which as noted on several occasions, is a very real possibly if expectations become unanchored.

So far, after rising sharply post the March trough in financial markets, US 10-year breakevens have levelled off, whilst benchmark bond yields have barely budged.

Fiscal stimulus in focus ahead of Fed statement

The Fed is also likely to lean heavily on the need for Congress to come up with fresh stimulus – it cannot do all the lifting here. Whilst a fifth package remains elusive, Nancy Pelosi has signalled that Democrats could delay the October recess in order to get a deal done, with the White House saying the $1.5tn package floated by the ‘Problem Solvers Caucus’ was worthy of discussion.

The Fed has not quite exhausted all its ammunition, but it’s very much in a position where it needs to wait for the fiscal support. Several Fed officials have been talking up the need for fiscal support.

There will also be updated economic projections to watch out for along with the tone the Fed strikes on the economic outlook  – we know the Fed has taken a pretty cautious view of the economy and the loss of momentum in initial jobless claims may be a concern.

Looking ahead to today’s session, US retail sales will also be closely watched and may well show a sharp slowdown after Americans’ $600 stimulus cheques stopped. UK inflation figures earlier this morning showed a sharp drop in CPI inflation to 0.5% in August from 1.1% in July, as the Eat Out to Help Out scheme and the VAT cut on the hospitality industry bit into prices.

Hut Group IPO

Elsewhere, Hut Group shares got off to a lively start on their stock market debut, rising to 650p in what is the biggest IPO in London this year and for several years. As noted when the filing was lodged, after a considerable ramp in tech valuations this year – eg, Ocado +100% in the last 12 months – this IPO looked like a well-timed move, at least on the part of the founder who is due a bumper £700m pay-out should all go well, whilst still remaining very much in control of the business.

The question is whether this 10% margin business deserves a tech rating. A standard listing makes it ineligible for inclusion on the FTSE index although its mooted market cap would be enough just to make the FTSE 100. Any standard listing raises eyebrows as it means no index inclusion and lower governance standards. Arcane incentive schemes and a founder share model are also suspect.

Founder Matt Moulding is also selling £54m of stock despite previously indicating he would retain all his shares. Heavy demand indicates what a tech multiple, zero per cent interest rates and a premium on growth can do for your stock.

Indeed, the IPO market continues to show considerable strength, which does not indicate significant signs of stress in capital markets. Snowflake, a cloud software business backed by Warren Buffett, got its IPO off cleanly at a price of $120, valuing the company at $33bn.

Apple unveiled new products, but investors were underwhelmed by products like the new iPad Air and new watches, with the shares flat on the day and ticking lower by 0.67% in after-hours trading. All investors really care about is the 5G iPhone launch, when it comes.

Oil climbs on back of large inventory draw

Crude oil prices rose after a surprisingly large draw on inventories and have now bounced over 8% from last week’s lows. API figures showed stocks fell 9.5m barrels in the week ending September 11th, much more than the narrow 1.27m barrel draw expected.

EIA figures today are expected to show a build of 2m barrels, which seems rather unlikely in light of the API report. Oil prices firmed despite OPEC and IEA reports this week indicating a slower recovery in demand in 2020 than previously forecast.

Nevertheless, prices look vulnerable to a further pullback as the near-term uptrend runs out of steam and the longer-term downtrend re-asserts itself.

Stocks open higher ahead of busy central bank week

It looks like a second wave, but not as we know it. Even if cases are starting to rise in Britain and elsewhere, deaths are not picking up in the same way as before – younger, less vulnerable people are getting the virus this time it seems.

The World Health Organization (WHO) recorded a record one-day rise in cases globally. France recorded a record number of new infections – some 10k over the weekend. There is not the appetite for blanket shutdowns of the economy again – this is good, but the ongoing fear factor will keep a lid on animal spirits.

And governments could be spooked into heavy-handed responses, even if they don’t want to kneecap the economy.

AstraZeneca resumes vaccine trial

Fear can be vanquished with a vaccine, so it’s good news that AstraZeneca and Oxford University are resuming trial of their vaccine candidate, after it was paused a week ago. News on a vaccine – good or bad- is set to emerge in October, it seems.

Pfizer says there is a good chance it will deliver data from its late stage trials of its candidate vaccine, developed with German drug maker BioNTech. If approved, it could be available to Americans by the end of the year. The question is whether this may be needed – Sweden seems to be showing the way towards herd immunity.

With vaccines and herd immunity, unemployment becomes a much bigger problem. The end of the furlough scheme raises the prospect of employment rates reaching a cliff-edge. Unemployment could spiral and redundancies are taking place at twice the rate of the last recession. US initial jobless claims last week indicated the recovery is slow, even if job openings are more encouraging.

BoE to signal more stimulus this week?

This could make this week’s Bank of England meeting interesting. It has enough ammo in the quantitative easing quiver to last until the end of the year, but with only two more scheduled before 2020 is over, the Bank will need to lay the ground for more stimulus. Governor Andrew Bailey said central banks should go “big and fast” with QE and other stimulus at times of crisis.

If there an explosion in unemployment, this line will be tested. I’d expect the Bank to sound more dovish this week, although it is unlikely to alter policy so far in advance of the November Budget, in which the government show its fiscal hand.

Of course, there is still time for Rishi Sunak, the Chancellor, to extend furlough, as many are urging him to do. UK 2-year gilt yields hit fresh record lows this morning with the market seemingly convinced the BoE will give a very strong signal it is preparing to deliver additional stimulus – most likely in the form of increased asset purchases rather than a descent into a vortex of negative rates.

The problem of furlough schemes and extending them is of course one of productivity and the opportunity cost of maintaining people in a kind of output stasis. Zombie workers and zombie companies are a growing problem. Indeed, new research shows the number of zombie companies in the US is near the 2000 record.

European stocks build on decent week

European markets opened higher on Monday, with the FTSE 100 solidifying above 6,000 and the DAX ticked up to 13,300. This comes after a decent week for European markets that contrasted with Wall Street weakness.

The Nasdaq finished last week down –4%, with the S&P 500 dropping –2.5% over the five days. The Nasdaq broke under its 50-day simple moving average, whilst the S&P 500 traded through it at the lows but held it at the close.

European markets fared better as they were much less exposed to the sell-off in tech – some rotation taking place as investors look to ‘reopening’ stocks over the Covid-19 winners, but it was far from anything significant.

Indeed, in dollar terms, the moves in the FTSE 100 for example were far less impressive. Investors in the US may also be paying attention to the presidential race – Biden’s tax plans would knock earnings, although it’s far tighter race than the national polls indicate. US futures are higher and have cleared the Friday peak struck during the London morning session.

Abenomics safe as Suga elected new leader?

Suga-high for Japanese equities? In Japan, Yoshihide Suga, the former chief cabinet secretary, looks set to replace Shinzo Abe as prime minister after being elected to the lead the country’s ruling Liberal Democrat Party. Suga has pledged to maintain Abenomics and seems to be causing few ripples in the market.

He will only have a year to make an impact though before the next elections are scheduled – he could choose to call a snap election to shore up his support, but the coronavirus might get in the way.

The Nikkei 225 edged up 0.65%, while the yen was steady against the dollar at 106.

M&A activity is rising and there are deals aplenty – TikTok seems to be heading the way of Oracle, whose chairman is a Trump support, whilst SoftBank is offloading Cambridge-based Arm to Nvidia.

Meanwhile Gilead, whose remdesivir antiviral is treating Covid-19 patients, is buying Immunomedics for $21bn. With vast sums of private equity to be deployed, there may be a slew of deals and takeovers as we head into the autumn.

Brexit and Federal Reserve to weigh on cable, gold rangebound

In FX, ongoing talks between the UK and EU look set to be the chief driver for GBP crosses. However, a Federal Reserve meeting this week will impact the USD side of cable. There is not a new to say about the Brexit talks after last week – we await to see whether the discussions can get any further.

Usual headline risks to cable, but GBPUSD could get squeezed higher absent of any negative news. GBPUSD traded at 1.2840 in early trade having made a firm near-term base at the 200-day EMA at 1.2750. Downtrend still in force until the 1.30 handle is recovered.

Elsewhere, gold is still trading in a very narrow range around the $1940 level. US breakevens have come down a bit, US 10s are hunkered in around 0.66% and real rates (10-year TIPS) have just come down a touch.

Remember it’s Fed week. The Federal Reserve convenes on September 15th and 16th for the first time since Jerome Powell signalled that the central bank would be prepared to tolerate higher inflation as a trade-off for a swifter economic recovery and jobs growth.

Unemployment has fallen since the pandemic peak but is not improving quickly enough. The Fed is not expected to announce any fresh policy change but will reinforce Powell’s message from Jackson Hole on the policy shift.

Indeed the main focus for the Fed right now is actually not monetary policy but fiscal as members await any move in Washington to deliver a fresh stimulus package.

Fed minutes waltz away with risk appetite

FOMC minutes are casting a shadow over markets and underline that any recovery is not going to be a straight line of advances. The Fed layered on the risks and caution thick, but didn’t come up with any sweeteners for the market in the shape of more easing.

The US dollar roared back, gold tanked, and stocks are wobbling after minutes from the Federal Reserve’s July meeting left investors a little disappointed. Members clearly backed away from yield curve control and seemed to be in less of a hurry to push for clearer forward guidance.

‘With regard to the outlook for monetary policy beyond this meeting, a number of participants noted that providing greater clarity regarding the likely path of the target range for the federal funds rate would be appropriate at some point,” the minutes said. This use of the phrase ‘at some point’ indicated members are not in a rush to tie rate hikes to specific economic goals. The Fed also noted that most members judged yield curve control ‘would likely provide only modest benefits in the current environment’.

The FOMC meets again in mid-September and will be reviewing the recent economic progress. For now it seems the Fed doesn’t feel the need to go quickly on more explicit forward guidance as the economy is still ‘in’ the pandemic – as long as cases rage we know what the Fed will do. The question comes on the exit – how quickly does the economy need to recover into the autumn for the Fed to feel the need to tie tightening to specific economic goals – the purpose of which would be to keep markets on an even keel.

Equities trip on FOMC minutes

The S&P 500 flirted with 3,400 in the early part of Wednesday’s session but shot 50pts lower after the minutes were released, ending down 0.44% to 3,374.85. The Dow and Nasdaq both tripped up as well. Asian markets fell overnight. European equity indices are taking their cue from this weak handover and dropped over 1% in early trade, before stocks pulled off the lows after China’s ministry of commerce said this morning that US-China trade talks would resume in the coming days. Vix futures are still pointing to increased volatility as we head towards the US election in November.

Apple hits $2tn market cap

Apple advanced to a new record high and became the world’s first $2tn company as it rose above $467 but closed flat at $462.83. There is a lot going on here – some of which is driven by Apple’s business and some of which is due to external factors. Apple has created a brand with immense power, and investors have really bought into the pivot towards Services to generate more sustainable revenues than being a pure play hardware manufacturer.

The upcoming rollout of 5G iPhones is a prime factor, as is its very strong balance sheet. I also think we could throw in the upcoming stock split as a factor as despite the fact it ought not to matter to the share price, it will undoubtedly make it easier for retail investors – a growing crop of US day traders – to buy the shares. Cf Tesla. And it’s a Covid-winner – the thirst for high quality growth has been well documented.

Dollar up, Brexit headline risks could weigh on sterling

The dollar caught a strong bid after the minutes. EURUSD fell from 1.1940 to 1.1840 where it has found support and is pushing off this level to pare some of the losses this morning. Cable also shipped two big figures in the last day and is now under 1.31 with near-term horizontal support at 1.3050. Brexit headline risks remain as trade talks continue this week – update coming tomorrow but we could get wire reports to knock the stuffing out of sterling. Overall if this is a cyclical dollar bear market then we would see this as a temporary blip.

Delivery Hero – a beneficiary of an increase in orders due to the pandemic – has been named the replacement for the disastrous, scandal ridden Wirecard on the DAX. The food delivery company will join the German blue-chip index on Monday. Delivery Hero is on course to deliver one billion orders this year, thanks in large part to the lockdowns.

Another sub-1m print for US jobless figures?

US initial jobless claims today are expected to come in under 1m again, with continuing claims at 15m. Last week’s report showed jobless claims fell under 1m for the first time since the pandemic, but unemployment levels remain exceptionally high and the concern is that temporary layoffs become permanent. The rate of change is not going to improve – the easy wins are behind us and the hard slog lies in front.

EIA crude oil inventories showed a draw of 1.6m barrels last week, while gasoline stocks declined by 3.3m barrels. WTI crude prices nudged up to $43.20 before pulling back as risk assets came under pressure from the Fed minutes. Copper prices broke above $3 for the first time in over two years but failed to sustain the move after the minutes and pared gains.

Tomorrow morning watch for Eurozone PMIs (ignore) and UK retail sales. Sales rebounded 13.9% in June after May’s 12.3% jump, which almost took total sales back to where they were before the pandemic. We know however that these masks huge shifts in how people spend their money. We also know that when furlough schemes end and we get a real increase in unemployment, people will be tightening their belts.

US EIA Oil Inventories Preview: Crude edges higher on surprise API draw

Crude and Brent oil continue to trade sideways today, with crude adding $0.38 and Brent up $0.40 to reclaim around half of yesterday’s losses.

While crude oil has managed to rise above previous long-term resistance at $41, a new ceiling at $42 has quickly been established, and WTI continues to trade within a narrow range. It is the same story for Brent – a break above $44 early last week couldn’t be sustained.

API data surprises with large crude draw

Today’s gains have been prompted by the latest American Petroleum Institute’s crude oil inventories data, which has surprised with a sizeable 6.829 million barrel draw. Analysts had expected to see a mild increase of 357,000 barrels.

While this points to better-than-expected demand, it’s worth noting that last week’s figures revealed a shock build of 7.544 million barrels against expectations of a draw.

Stimulus talk, FOMC meeting limit upside for oil

Also capping gains are delays to the next US stimulus bill. Republicans and Democrats are still debating the measures – Democrats claim they don’t go far enough, but President Trump also has criticisms of the bill.

Oil gains could accelerate on this afternoon’s US crude oil inventories data from the Energy Information Administration. Analysts predict a build, but after the API’s figures we could see the data confirm a large, unexpected draw instead.

Market focus on tonight’s announcement from the Federal Open Market Committee could keep a lid on price action. Traders are expecting the FOMC to reaffirm its commitment to stimulus – the Federal Reserve has already announced that its lending programmes will continue until the end of the year, beyond the original September end date.

However, if policymakers don’t sound as dovish as markets expect this could fuel a rebound for the dollar, which this week hit two-year lows. Dollar strength would put downside pressure on crude and Brent even if the latest inventories data is positive.

Here’s what to expect from this week’s FOMC meeting

The Federal Open Market Committee announces its latest monetary policy decisions and guidance on Wednesday. Blonde Money CEO Helen Thomas takes a look at what the Fed might hope to achieve with its latest meeting.

Catch the latest political and macroeconomic insight from Helen each week on XRay.

La settimana che ci aspetta: I verbali del FOMC e i nonfarm payroll dominano il calendario

Mentre l’indice PMI cinese sarà al centro dell’attenzione all’inizio della settimana, il calendario economico statunitense dominerà i giorni successivi, con l’ultimo ISM Manufacturing PMI, i verbali delle riunioni del FOMC e i nonfarm payroll di giugno.

L’indice PMI cinese 

È il momento dei più recenti indici PMI cinesi: dal momento che si tratta dei primi dati PMI globali del mese, forniranno ai mercati una possibile tendenza su come stanno andando le cose.

Ora la ripresa della Cina potrebbe essere in pericolo a causa dei nuovi focolai di Covid-19, ma gli ultimi indici PMI daranno comunque un’indicazione su come potrebbero andare le altre nazioni, poiché anch’esse dopo aver combattuto il virus iniziano a concentrarsi maggiormente su come far ripartire le proprie economie.

Inflazione in Germania e nell’Eurozona 

A maggio i prezzi al consumo sono diminuiti dello 0,1% in tutta la zona Euro, anche se questo dato non rappresenta certo uno shock. I dati sull’inflazione di questa settimana potrebbero mostrare ulteriori cali, cosa prevedibile dato l’enorme crollo della domanda, l’aumento della disoccupazione e gli incentivi che vengono emessi sul mercato Banca Centrale Europea. La scorsa settimana Fitch ha previsto che l’inflazione core dell’Eurozona rallenterà nei prossimi 18 mesi e che nel 2021 finirà sotto lo 0,5%.

Un periodo prolungato di deflazione sarà negativo per l’economia, ma si tratta di una situazione che a breve termine è attesa, perciò l’impatto sul mercato dei dati relativi all’Indice sui Prezzi al Consumo è stato in qualche modo attenuato.

Vendite al dettaglio in Germania 

L’attività dei consumatori è fortemente rimbalzata negli Stati Uniti e nel Regno Unito da quando le restrizioni sono state allentate: riuscirà la Germania a seguire l’esempio? A maggio le vendite al dettaglio negli Stati Uniti sono aumentate del 17,7%, superando le aspettative di un aumento dell’8%, mentre le vendite nel Regno Unito sono aumentate del 12% rispetto alle previsioni del 5,7%.

In Germania le vendite al dettaglio sono scese del 5,3% ad aprile, ma il dato è di gran lunga migliore rispetto al tonfo del 12% previsto dagli analisti, con l’aumento delle vendite online che ha contribuito ad attenuare le proporzioni del crollo. Per maggio si prevede un aumento delle vendite del 2,5% quando i negozi fisici hanno iniziato a riaprire, ma come accaduto con i dati di Stati Uniti e Regno Unito potrebbero esserci dati ancora più confortanti.

Il Manufacturing Index dell’ISM 

La produzione americana sta faticando a riprendersi dallo shock della pandemia. L’indice PMI di maggio dell’ISM ha registrato un rialzo dopo i dati più bassi da oltre un decennio di aprile, ma è rimasto di mezzo punto sotto le aspettative del mercato. Un rimbalzo più netto è previsto per giugno, ma l’indice PMI sul manifatturiero rilasciato da IHS Markit la scorsa settimana ha deluso le aspettative, rimanendo in contrazione, anche se i dati dell’Eurozona e del Regno Unito sono tornati in crescita.

I verbali dell’incontro del FOMC 

Il FOMC ha inferto un duro colpo ai mercati a seguito del suo ultimo incontro, rilasciando proiezioni economiche peggiori del previsto che hanno del tutto fatto sparire l’idea che gli Stati Uniti avrebbero potuto vedere una ripresa a forma di V. I responsabili delle policy hanno osservato che i tassi di sarebbero rimasti vicini allo zero almeno fino al 2022, e che il tasso di acquisti di asset sarebbe aumentato nei prossimi mesi.

Il verbale dell’incontro fornirà maggiori dettagli, e i mercati saranno particolarmente interessati a qualsiasi annotazione relativa al controllo della curva dei rendimenti (YCC), che probabilmente sarà il prossimo strumento politico che la Fed implementerà per tenere a freno i tassi. Quando tale azione verrà intrapresa è ancora incerto, ma i verbali potrebbero fornire alcuni indizi.

Rapporto sui nonfarm payroll statunitensi 

Venerdì sarà un giorno festivo, perché il 4 luglio, Giorno dell’Indipendenza degli Stati Uniti, quest’anno cade in sabato. Ciò significa che il rapporto sui nonfarm payroll di giugno uscirà giovedì.

I dati del mese scorso hanno lasciato tutti sbalorditi per l’aumento di 2,5 milioni di occupati rispetto alle previsioni di un calo di 8 milioni, segno che l’economia americana potrebbe riprendersi più velocemente di quanto si pensasse in precedenza.

Tuttavia, gli ultimi dati sulle richieste di sussidi di disoccupazione settimanali sono stati deludenti, anche se le cifre hanno continuato a diminuire, e il calo delle nuove richieste è stato meno significativo del previsto. Ciò indica che la ferita nel mercato del lavoro è più profonda? In caso di risposta affermativa, è necessario tenere a freno le aspettative che i nonfarm payroll possano continuare a fornire cifre così importanti?

In evidenza su XRay questa settimana

Leggi il programma completo dell’analisi e formazione del mercato finanziario.

07.15 UTC Daily European Morning Call
From 15.30 UTC 30-Jun Weekly Gold, Silver, and Oil Forecasts
17.00 UTC 01-Jul Blonde Markets
19.00 UTC 01-Jul Introduction to Currency Trading: Is it For Me?
12.25 UTC 02-Jul

US Nonfarm Payrolls: Live Market Analysis

 

Eventi economici principali

Presta attenzione agli eventi più importanti sul calendario economico di questa settimana:

12.00 UTC 29-Jun German Preliminary Inflation
23.30 UTC 29-Jun Japan Unemployment / Industrial Production
After-Market 29-Jun Micron Technology – Q3 2020
01.00 UTC 30-Jun China Manufacturing, Non-Manufacturing PMIs
06.00 UTC 30-Jun UK Finalised Quarterly GDP
30-Jun easyJet – Q2 2020
09.00 UTC 30-Jun Eurozone Flash CPI
12.30 UTC 30-Jun Canada Monthly GDP
14.00 UTC 30-Jun US CB Consumer Confidence
After-Market 30-Jun FedEx Corp – Q4 2020
01.45 UTC 01-Jul Caixin Manufacturing PMI
06.00 UTC 01-Jul Germany Retail Sales
Pre-Market 01-Jul General Mills – Q4 2020
Pre-Market 01-Jul Constellation Brands – Q1 2021
12.15 UTC 01-Jul US ADP Nonfarm Payrolls Report
14.00 UTC 01-Jul ISM Manufacturing PMI
14.30 UTC 01-Jul US EIA Crude Oil Inventories
18.00 UTC 01-Jul FOMC Meeting Minutes
01.30 UTC 02-Jul Australia Trade Balance
12.30 UTC 02-Jul US Nonfarm Payrolls (Friday is US Bank Holiday)
01.30 UTC 03-Jul Australia Retail Sales
All Day 03-Jul US Bank Holiday – Markets Closed

Fed braces for long haul, second wave worries hit equities

Time to dig in for the fight. Usually, at least for the last decade, a dovish Federal Reserve would help boost risk sentiment. But we are in different times and however accommodative monetary policy remains, the market needs a lot more, like a patient hooked on painkillers. Whilst the Fed last night committed to keeping rates at zero all the way through 2022, stocks (excluding the Covid-immune tech sector) are selling off.

The Fed’s extremely downbeat assessment of the US economy and jobs market, combined with expectations for a slow recovery, left risk assets looking very exposed after a big run up last week. Stocks in Europe slipped up ahead of the meeting and have extended losses today with the major bourses down more than 2% again.

Asian shares fell and Wall Street closed in the red, although the Nasdaq managed to secure another record closing high above 10,000. US Treasury yields sank partly on the commitment on keeping rates down but also because investors see a slower recovery taking place and lasting damage to the economy. Gold rallied to $1740.

FOMC economic projections dash hopes of V-shaped recovery

Assessments for the economy are grim. The Fed forecast the US economy to contract by 6.5% this year and for the unemployment rate to be above 9% by the end of the year. This would be an improvement from the current rate of 13.3%, but it points towards a very slow recovery.

Indeed, unemployment is still seen at 6.5% through 2021. Faced with this, Jay Powell, the Fed chairman, said he is “not even thinking about thinking about raising rates”. And as many have warned, some of the damage will be permanent, meaning significant lost productivity. Powell said: “My assumption is there will be a significant chunk…millions…who don’t go back to their old jobs.” The V-shaped recovery theory died last night with the Fed.

Gloomy forecasts from the Fed chime with the OECD’s downbeat outlook. It said the UK economy will contract 11.5% this year even without a second wave. And second wave worries are another factor dragging down on stocks, particularly as we see rising numbers of Covid cases in several US states like Texas, Florida and California, where hospitalisations are at their highest since May 13th after rising for nine of the last ten days.

Really the market got too far ahead of itself and is reacting to the Fed’s gloomy outlook and fears of a second wave of infections. We will get more indications about the pace of hiring vs firing today with the US initial and continuing jobless claims number.

European equities slump on the back of FOMC meeting

Today’s market moves show the reopening trade unwinding in the wake of the Fed. Carnival and IAG led the losers on the FTSE 100 whilst only Polymetal, Fresnillo and Unilever were higher. European travel & leisure shares fell 5%, with automakers and banks down 4%.

The S&P 500 is likely to open weaker after sliding 0.5% yesterday to close under 3200 at 3190. Ocado shares fell 6% after announcing a £657m share placing and that it would raise a further £350m by way of a convertible bond. Whilst shares are lower, this is about raising cash to grow, possibly transformational growth. This is what Amazon would do.

Tesla led the tech sector and Nasdaq higher, as shares rose 9% yesterday to close above $1,025. The leg up came after Elon Musk said the company would ramp production of the Tesla Semi, its electric freight truck.

In FX, the dollar is finding bid as risk sentiment sours. GBPUSD has moved back to test 1.2650, having spiked as high as 1.28 yesterday. The pound is now very much a RoRo currency – risk-on, risk-off.

Copper prices fell having rallied for the last few sessions on fears of a slow economic recovery. Oil was holding losses as it hit around $38 for WTI after a surprise rise in US crude stocks combined with the hit to risk sentiment.  EIA figures showed crude oil inventories rose 5.7m barrels vs expectations for a 1.45m drawdown.

Sellers return: S&P 500 in retreat, next leg lower to 2975? 

Candlestick price chart of the S&P 500 index

FOMC meeting preview: what to watch out for

The FOMC meeting concludes today and markets are waiting for tonight’s announcement of the decisions taken. BlondeMoney CEO Helen Thomas talks us through what to expect later.

BlondeMoney FOMC meeting preview

 

The FOMC aren’t expected to make significant changes to monetary policy, having already acted swiftly to dramatically ease policy to combat the economic fallout of the Covid-19 pandemic.

Instead of looking for changes to interest rates or quantitative easing, markets will instead be focussing on key issues like yield curve control and negative rates, to see whether these got a mention during the FOMC meeting.

FOMC to consider yield curve control?

Yield curve control involves a central bank buying bonds of a set maturity in order to keep the yield at below its target level. This is done to keep borrowing costs under control, and is already being used by the Bank of Japan and the Reserve Bank of Australia.

What will the FOMC say about negative rates?

The FOMC has so far resisted calls for interest rates to go negative. However, it wants to make sure the market is confident that it will do whatever it takes to support the economy should things worsen. We can expect Federal Reserve chair Jay Powell to be asked about negative rates during the press conference held after the FOMC meeting.

Stocks tread ranges ahead of FOMC, pound at 3-month high

Some of the biggest share price gains registered this week have been among companies that have filed for Chapter 11 bankruptcy protection – the likes of Hertz, JC Penney, Pier 1, Whiting Petroleum, as well as firms like Chesapeake Energy and California Resources which are about to file for bankruptcy. This is downright speculation, gambling by any other way of it looking at it.

Retail investors – many trading for free with Robinhood accounts – are snapping up penny stocks and driving up the shares of companies whose stock is essentially worthless. Most of these investors probably don’t realise that common stock comes precisely bottom of the pecking order in bankruptcy proceedings. Even if they don’t go bankrupt and restructure, shareholders get wiped out. It’s a sign of a frothy market – just make sure you are not the greater fool holding the stock when the music stops.

Europe opens higher, stock markets await clarity on recovery and policy support

Stocks took a breather yesterday with a decent pullback, though European bourses opened a little higher this morning ahead of the Federal Reserve statement this evening. Asian shares were mixed, with Tokyo a tad higher and Chinese shares a little weaker.

Chinese inflation figures were soft, with producer prices down 3.7%, the worst drop in 4 years, and consumer prices rising by 2.4%, down from 3.3% in April. Meanwhile data crossing this morning showed French industrial production declined 34% in April – but the market long ago chose to ignore any backward-looking data.

European stocks opened higher after yesterday’s selloff, now bouncing around ranges before there is more clarity on economic recovery and any further policy support.  On the former, there are concerns about two-consecutive days of record numbers of hospitalisations in Texas as lockdown restrictions lift, but broadly optimism about reopening is trumping doubts about second waves and a slow, lacklustre recovery.

It turns out pubs won’t reopen by Jun 22nd, but the bigger worry is how you get children back to school – that should be a priority. Meanwhile, I have grave doubts about the state of the UK employment market come the autumn as furlough schemes end and businesses have reopened to a big fall in demand. Such circumstance don’t bode well for civil order, which is already looking strained in places.

Markets await FOMC statement, Nasdaq above 10,000

On the latter, the FOMC statement is due later today (see yesterday’s note). There has been chatter about yield curve control and more dovish forward guidance, but the Fed may prefer to wait until September before it strikes. The recent recovery should give it time to think, albeit it will be keeping a close watch on longer-dated yields moving up, which may be a worry.

However, I think its focus is keeping a lid on the front end and allowing some steepening should not be a concern. I think I said a year ago that we should no longer pay any attention to the dots – they’re meaningless guesses. But there could be some optimists on the FOMC seeking to pencil in a hike in 2022. More broadly, I think the Fed will signal it accepts there will be no V-shaped recovery even if the recent data has been encouraging.

US stocks were weaker as the rally paused for breath with the S&P 500 down 0.78% at 3207. The Dow snapped a 6-day winning streak with a 1% fall. The Nasdaq was of course still higher and broke 10,000 for the first time ever. Boeing shares have been on a tear lately but tripped up with a 6% drop as it revealed it delivered just four jets in May and saw another 18 orders cancelled.  IATA says 2020 will be the worst year in the history of the aviation industry. Vroom went zoom with a 117% gain on the first day of trading to $47.90. Apple shares rose another 3% to a fresh all-time high on reports it would use its own chips in its devices, helping to drag the Nasdaq into record territory.

Dollar offered, cable hits fresh 3-month high

In FX the dollar is offered across the board with both risk proxies and the yen making gains. The pound has broken out to fresh 3-month highs with GBPUSD clearing 1.2760. EURUSD was higher around 1.1350, trying to take out the Jun 5th peak at 1.1382. The ECB’s Muller said PEPP needs to be temporary and should not be increased if at all possible. He also said low inflation expectations are a short term risk, so take what he says with a pinch of salt.

Expectations for a dovish Fed may be a factor but we are seeing this as part of an unwinding of the strong dollar pandemic trade that was built on USD liquidity squeeze. Nevertheless, the dollar index continues to make new lows and may well take 95 handle before long having broken down through the last Fib support. Key support is seen around the 94.50/60 area.

Oil steadies ahead of EIA inventories data after surprise API build

Crude oil (Aug) was steady a little above $38, about $2 off Monday’s highs, after API data yesterday showed a surprise build in US crude inventories that has reignited oversupply fears. US crude stocks climbed 8.4m barrels in the week to Jun 5th, vs expectations for a draw of 1.7m barrels. The EIA data today is forecast to show a draw of 1.8m barrels. But the forecasts have been way out for weeks, with an average consensus miss of about 5m barrels, so I wouldn’t be putting too much faith in the expectations.

Natural gas prices spiked aggressively lower overnight and though paring losses are still trading down by around 2% today after the IEA said 2020 would see the largest demand shock in the history of the market.

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